Benefit-Cutting States See Less Job Growth

As the pandemic plunged the economy into recession in early 2020, unemployment insurance proved a critical safety net for working families. Unemployment benefits — their generosity and reach extended by the federal Families First and CARES Acts — made it possible for many workers and their families to weather the COVID-19 recession, to adjust to the closure of schools and child care centers, and to avoid work-related risks to their health. 

But that generosity was dampened, and cut short, by policy choices made in the states. In Iowa, the rollout of new federal benefits was slowed by the inability of the state to process the avalanche of claims, and bewilderingly inconsistent guidelines as to program eligibility and benefits. Almost as soon as the dust had settled, Iowa Workforce Development began clawing back benefits already paid. In July, this cruelty was compounded by the decision to cut short Iowa’s participation in the extended federal UI programs.

That decision rested on the shaky premise that overly generous unemployment benefits were discouraging reemployment and slowing recovery. The result? The states (like Iowa) that rushed to cut unemployment benefits during the summer have seen slower job growth than the rest of the country.

Iowa State University economist Dave Swenson’s analysis is depicted in the chart below, which shows job growth over the three months after Iowa and other states ended pandemic unemployment programs in June. States maintaining those programs grew at nearly twice the rate of those ending them.

Iowa’s labor force participation rate fell from 69.9 percent to 66.6 percent between February 2020 and June 2021, one of the steepest declines among the states, and has been stuck at 66.8 percent since then. This is hardly surprising: The loss of benefits did little to change the incentives or opportunities faced by most workers. And throwing back the federal dollars simply slowed consumption and growth.

The sorry punchline to this sorry arrived last week, when Governor Kim Reynolds signed into law House File 902, a “vaccine mandate” response that guarantees unemployment insurance to those who lose their jobs for refusing to meet an employer’s vaccine requirement.

Let that sink in. Since the pandemic began, the Reynolds Administration has done all it can to strangle access to unemployment benefits — despite the fact that the program is intended to protect workers against both economic downturns and unsafe working conditions. In a spasm of nakedly political generosity, it now guarantees those benefits to a tiny subset of workers inventing religious or political objections to basic public health measures. Even the business lobbyists are bewildered.

The pandemic exposed the weaknesses and inequities of our patchwork unemployment insurance system. The American Rescue Plan, in response, has set aside $260 million to help states ensure equitable and timely access to UI benefits. State innovations could modernize benefit administration (Iowa’s unemployment system runs on a computer mainframe that was installed when Richard Nixon was president), expand and simplify eligibility, and bolster benefits for low-income workers. 

Indeed, Iowa promised such reforms as a condition of its early participation in federal pandemic programs. The Families First Act provided states critical administrative support in exchange for the promise that states would follow up with plans to increase the share of unemployed workers receiving benefits. Offering up UI benefits as a political reward for staying unvaccinated is not likely what Congress had in mind.

Colin Gordon, a professor of history at the University of Iowa, is senior research consultant for Common Good Iowa.